2023-11-24 12:54:15
During the election campaign, Javier Miley He displayed a giant $100 bill with his face on it. Quite a premonition, his followers must have thought, and with his vote they led him to win the elections. Many economists around the world consider that his promise lacks technical and political foundation. However, the president Alberto Fernandez heard in the privacy of the palace, during the meeting they held last Tuesday, the same thing that the far-right has assured in the stands: “Let’s dollarize Argentina“. Fernández’s perplexed face was portrayed in the photo they took together.
The anarcho-capitalist considers that delegate monetary sovereignty to the US Treasury Department will be the source of prosperity for a country with a 40% poor and one inflation that will pierce the 150% annual when he receives the attributes of command. “Our calculation is that in 16 months all pesos will be exchanged for dollars“, said.
In Latin America three similar experiences are known: Ecuador, El Salvador and Panama. But it is the first of the countries where the Milei team has paid its attention. In the midst of an incessant adjustment, with hyperinflation biting at the heels and the background of bankrupt banks and flight capital, Ecuadorian President Jamil Mahuad dollarization was launched on January 9, 2000: The sucre, the existing currency, was previously devalued by 400%. Twelve days later, Mahuad was fired from the Government for a protest in which the indigenous movement and the Armed Forces converged. He left the Carondelet Palace hiding in an ambulance.
Dollarization was carried out in an economy with a GDP of 37 billion dollars, relatively small. The deposits were pulverized, something that Argentines know from experiences in 1989 and 2011. The first year of the new model was unable to stop inflation, which was 90%. The economy began to normalize over the years and reduce the cost of living by an average of 10% annually. Along the way, the import and financial sectors won.
A dependent model
He increase in international prices of raw materials, especially Petroleumand an unpublished remittance flow that migrants began to send on an unknown scale facilitated the stabilization process (something similar occurs in El Salvador, where remittances constitute 25% of GDP). Domestic consumption and public investment grew and living conditions improved as dollars entered the coffers of the Central Bank. The sustainability of the monetary scheme depended, however, on the international crude oil market.
During the years of Government of Rafael Correa, Ecuador turned to its Central Bank to contain low oil prices. Despite these efforts, there was no alternative but to finance the deficit in the trade balance with external debt. The successive presidencies of Lenín Moreno and Guillermo Lasso they deepened that trend. The lack of foreign currency was financed by asking for dollars from foreign banks and the International Monetary Fund (IMF), in exchange for an adjustment in the State and the labor market. Moreno had to face a social outbreak in 2019. Lasso was forced to bring forward the elections. Both political crises had the same economic substrate: almost 30% poor. The external debt went from representing 12% to 40% of GDP. Ecuador had to suspend its interest payments on two occasions.
Warnings and stubbornness
“The entry to dollarization It was traumatic and the exit would be catastrophic.“Andrés Arauz, former candidate for president and vice president of Correismo in the last two years, warned an Argentine radio station. “Dollarization is a monetary issue,” said Carlos Julio Emanuele, the ideologist of the Ecuadorian experience. Consulted by the Argentine portal Online Politicsthe former Minister of Economy after the fall of Mahuad was categorical: does not solve the problem of poverty. But Milei wants to travel that path, although the weight of the economy of this country is nothing like that of Ecuador.
Specialists estimate that about $37 billion would be needed to carry out the far-right master plan. If the Central Bank does not have something, it is that amount of money. Argentina has an external debt of 403,809 million dollars64% of its GDP and, between 2024 and 2026, the far-right Government must face maturities of more than 53,000 million, at an average of 17,800 million annually, according to the calculation of the consulting firm Ecolatina
Despite the insolvency and the consensus among numerous economists that dollarization is neither viable nor desirable, its promoters want request a new loan for the estimated amount and back the bonds with public companies, especially the oil company YPF and the shares of the Sustainability Guarantee Fund, which allow financing the payment of pensions and other expenses. Robin Brooks, of the International Institute of Finance, rules out that the savings of Argentines abroad, of about 300,000 million dollars, return to the country to finance Milei’s great project. The advisor to the president-elect, Carlos Rodríguez, proposes a generous whitewashing of capital so that those currencies that are outside the system return. ““The rich are not going to repatriate their dollars.”insists Brooks.
Social impact
Specialists in turn fear the social cost that this project could cause. Argentina paid dearly in the 90s to tie its currency to the dollar. He supported it with the sale of public assets and debt. The fantasy of being part of the “first world” left social wounds: poverty and unemployment. Everything exploded in 2001 with the crisis of the playpen. But 22 years seems like a century in this country. So many shocks occurred that the era of convertibility was relegated to oblivion, confusion or as an idyllic consumer past. “Although it can help stabilize the economy in the short term, the consequences of dollarization are negative: appreciation of the exchange rate, strangulation of the productive structure, a State incapable of maneuvering in crises and, in the long run, the adoption of quasi coins“, opines economist Claudio Scaletta.
The distance between desires and reality begins to present itself as a problem in Milei’s eyes early on. Emilio Ocampo, who was going to take over as head of the Central Bank to implement dollarization, has decided to turn his back on the far-right, dissatisfied with the appointments in the Ministry of Economy. The giant $100 bills with his face run the risk of becoming a party favor without even symbolic value. Milei may have to wait longer than necessary to realize his dream of a country without its own currency. Maybe it’s just the dream of a man who went too far.
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